Cement sector on its path to strong growth momentum, demand to help price recovery

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Chennai | Published: May 10, 2019 1:22:51 AM

According to the analyst, a price hike of Rs 30-50/bag in a month is unusual and hence all stakeholders are on tenterhooks that whether this unusual price hikes would sustain.

Commodity demand to help price recovery.

Cement demand is expected to remain strong over the next two-three years. With strong improvement of 7% growth in demand during FY18 and sustained demand growth of 10% in FY19, it is strongly believed that all tailwinds are in place to give boost to the commodity’s demand in coming years.

Further, sharp pricing recovery since February 2019 is likely to aid cement firms to report healthier operational performance in the current quarter as well as ensuing quarters. However, the recent surge in petcoke (domestic and overseas) prices may not dent the companies’ margins due to higher quantum of realisation recovery.

“We are hopeful that the recent price recovery should sustain hereon on account for sustained demand momentum and rising utilisation of the industry,” said market analyst Reliance Securities. Incremental demand from proposed ‘housing for all’ scheme and construction activities of Metro/irrigation projects are likely to aid utilisation and profitability of the industry in the long-term. We further believe that incremental demand will be higher than incremental supply over the next three years, which is expected to aid pricing recovery, Reliance Securities further said.

“The sector witnessed further leap in cement prices as if the domestic industry moved back to decadal trend. Though, industry’s utilisation used to be in the range of 85-90% a decade ago, we’re still at far below than those levels, owing to huge supply.”

According to the analyst, a price hike of Rs 30-50/bag in a month is unusual and hence all stakeholders are on tenterhooks that whether this unusual price hikes would sustain. Notably, a substantially average price hikes across the regions in April impacted the demand scenario, which along with emerging water shortage, slowdown in government projects and general liquidity tightening in the wake of ongoing general elections also took a toll on demand.

Though most dealers cited their sales volume declined 15-30% month-on-month in April, they expect demand momentum to pick up after election and they foresee strong cement volume in June. “They also believe that there may be further price hike in the ongoing month, which we have already witnessed in the past 4-5 days in several pockets. However, they also opined the recent price hikes might be rolled back partially in June to push volume,” the analyst said.

The analyst further said all-India average cement price in trade segment hovered at Rs 330-335 per bag (+10% y-o-y and +7% m-o-m) at the end of April, mainly led by significant price hikes seen in northern region (+12.4% m-o-m), followed by western (+8% m-o-m) and eastern (+7% m-o-m). However, prices in central and southern regions rose 5% and 3%, respectively, on m-o-m basis.

There have been further hikes of Rs 10-20/bag in several pockets from the beginning of May and the companies are hinting further price hikes in coming day as well and targeting the cement prices to take to Rs 400/bag, as indicated by dealers. Non-trade prices are also moving in tandem with trade segment prices, but the quantum of increase in non-trade is not as high as in the segment.

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